Highlights
The $ 58 billion 3-year US bond auction held yesterday was successful, withrobust demand and pushing returns down. At 18:00 GMT today, another $ 38 billion auction takes place in10-year bonds. If successful, yields may drop to 1.50%, allowing EURUSD torecover. However, the ten-year auction is more likely to follow last week’s seven-year auction, that is, a weakmarket interest, which would demand higher yields and a consequent rise in the dollar. At that same time, theUS House is expected to approve the $ 1.9 trillion package, and President Joe Biden will likely sign the bill soonthen, which should favor the rise in the dollar.
In yesterday’s session, EURUSD reached the level of 1.1830, with the strong dollar (the result of higher yields on securitiesof the American government and the expectation of superior performance of the US economy in relation to the other major economiesglobal) by pressing the pair. This result was also influenced by the fact that Chinese authorities increased their stocks ofdollar on Tuesday – something that was not repeated today. Potential political effervescence around the EU Recovery Fund and thehuge long positions in the speculative community also affect the value of the asset at the moment. In today’s session, theEURUSD fell to 1.1870 when it opened to the European market, and the pair rose to 1.1905, remaining close to 1.1900 for somehours. References indicate that EURUSD should reach the 1.1890 level
The FXStreet Forecast survey indicates an average target of 1.1908 this week. From a monthly perspective, as well as a quarterly one,analysts see the pair above 1.2000.
DXY is being traded at 92.1 thousand points. The USDJPY is oscillating close to 108.8. The pair reached 109.2, itshighest level in nine months. The USDCHF of $ 0.9301. Gold is trading at $ 1,711 an ounce, and silver at $ 25.7
Today, investors are wary of waiting for the release of US inflation data in February, with the expectation ofan increase of 0.4% in the month and 1.7% in the year, with prices under the effect of recent increases in the price of oil. Any other information about a potential rise in inflation could push the dollar up.
Tomorrow the ECB will release its review of monetary policy. The institution must maintain the rates, but can accelerate the pace of purchaseof assets to contain the increase in bond yields, which can harm the growth prospects of the economyof the block.The main facts observed by investors at the moment are
COVID-19
Combined antibody therapy by the pharmaceutical company Eli Lilly showed a reduced risk of hospitalizationor death in 87% in high-risk patients with newly diagnosed Covid-19. The combination receivedemergency use authorization from the FDA. The results suggest that the treatment maintained its effectseven with the new variants.
The Los Angeles school district is expected to reopen schools for face-to-face education in the coming weeks. Theythey plan a hybrid model that combines online and face-to-face instruction with a progressive reopening. Allstudents and staff will be tested before returning, and other rules include the requirement for masks andsocial distance for students, employees and visitors.
MACROECONOMY:
Industrial production in France increased by 3.3% in January 2021, exceeding market forecasts for a0.5% increase. It is the biggest gain in six months. Production increased in manufacturing (3.3%), especiallymachinery and equipment (8.4%) and food and beverages (1.6%), and in the coal and oil industry, due tothe reopening of several refineries (7.2%). However, compared to February 2020, production was 1.7%smaller.
Mortgage applications in the United States fell 1.3% in the week ending March 5. Requests forreal estate loan refinancing fell 5% over the previous week and 43% over the yearprevious. Property purchase orders, which are less sensitive to changes in weekly rates,increased 7.2% in relation to the previous week and 2% in relation to the previous year. The average interest rate for30-year loans rose 3 basis points to 3.26%, the highest level since the week ended 3July.
The annual inflation rate in the USA increased to 1.7% in February 2021 from 1.4% in January, compared towith market projections of 1.7%. It is the highest rate since February 2020. On a monthly basis,consumer prices rose 0.4%, also in line with expectations. The gasoline index continued toincrease, rising 6.4% and accounting for more than half of the increase.
FISCAL POLICY
The European Parliament approved yesterday the new InvestEU program to generate private investments andsimplify access to finance in the European Union, helping to support small and medium-sized enterprises moreaffected by the pandemic. This is the final endorsement of the regulation agreed with the EU Council last December onthe program. According to a statement by the European Parliament “With 26 billion euros reserved in the budgetas a guarantee, this initiative is expected to mobilize 400 billion euros to invest in all Member Statesbetween 2021 and 2027, helping to build a greener, more digital and more resilient European economy ”. THEInvestEU is part of the covid-19 post-crisis recovery package (the 750 billion euro fund).
MONETARY POLICY
In a televised interview last Thursday, EDF President Jerome Powell,repeated that the prospects are becoming more positive, with “sustained” progress towards the goals of theon employment and inflation. An increase in the interest rate will not occur until inflation is above 2% for sometime, something that won’t happen anytime soon. Asked about Treasury yields, he noted that they are nota condition to change the current monetary policy, adding that for that it would be necessary a substantial advancetowards employment and inflation targets. If yields continue to rise, the EDF may have no choice but toinclude the control of the yield curve among its policies. The next FOMC meeting, which may bringchanges in US monetary policy, takes place on March 17th
